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Four days before this year’s June 24 presidential and parliamentary elections, the Turkish president’s son-in-law Berat Albayrak, then energy minister, announced the country would begin the construction of its first offshore wind farm in October.

“With a capacity of 1,200 megawatts, this new plant will be the world’s largest, built with the latest technologies, and we aim to make a minimum of 60 percent of its components locally,” said Albayrak.

With the focus on local production of the 8,000 components used in the project, as well as the expertise earned by the local engineers who would make up at least 80 percent of the workforce and advances in research and development, Turkey would step towards a bright future as a regional exporter of renewable energy products and expertise, Albayrak said.

The day after this statement, the Official Gazette announced a competitive tender for the project. It contained a guarantee that the Turkish government would purchase 50 billion kilowatt hours of energy from the 1,200-megawatt capacity wind farm. The tender, it said, would be granted to the company that offered the lowest price in an auction with a starting bid of $8 dollar cents.

The terms stated that the winning firm should have the plant operational and producing energy within 60 months of signing the contract. The firm that undertakes the scheme, known by its acronym YEKA, will be granted a 30-year licence to run the wind farm starting from the date of provisional acceptance, with the state guaranteeing to purchase energy produced throughout this period.

Thus, if all goes to plan, Turkish President Recep Tayyip Erdoğan will likely cut the ribbon on the completed wind farm on Oct. 29 2023, the 100th anniversary of the founding of the Republic of Turkey.

But the terms for the tender also stipulate the winner must write guarantees rising to a total of $120 million by the end of the bidding process.

A minimum investment of between $2 billion and $3 billion is required for the project, for which three potential sites have been set out in the Aegean, Marmara and Black seas. The tender winner will be required to raise this amount in its entirety from local or international financial markets.

Turkey’s ruling Justice and Development Party (AKP) never hesitates to make good political capital out of its massive construction projects; for a case in point, see the giant third airport in Istanbul, which Erdoğan opened on Oct. 29 as part of the celebrations marking the 95th anniversary of the republic.

Yet the party has remained curiously silent on the project to build the world’s largest wind farm even though the tender bidding process was supposed to progress to its auction phase last week. No notice has been given to the applicant companies specifying the time and place for the auction, which is widely rumoured to have been postponed until next year.

Companies have reportedly been very hesitant to put in a bid for the project due to the high requirements for locally produced parts and local personnel, and the government has not received the level of responses it had hoped for.

Besides the requirement for 80 percent of the engineers working on the project to be Turkish, one of the conditions stipulates that these personnel are provided with on-the-job training.

The international companies interested in the project reportedly have their doubts as to whether they will be able to find thousands of personnel and hundreds of engineers in Turkey with relevant experience, and are said to have conveyed their fears regarding the chances of frequent work accidents and the compensation that a large number of staff receiving on-the-job training could entail.

This has reportedly led to requests for flexibility on the requirement for local personnel. The companies fear that the requirement to provide on-the-job training to an inexperienced staff would make completion in 60 months impossible, and that delays could lead to the loss of their deposit guarantee and the risk of having to pay compensation.

The main problem facing the firms, however, is reportedly one of financing the project. This has already been a sticking point with a number of high-profile projects tied to the AKP administration, a recent example being the new airport in Istanbul.

When the Turkish government-linked construction firms undertaking that project were unable to secure international funding for that project, they turned to a consortium of six public and private banks, which provided $4.5 billion in credit.

Another expensive venture funded by Turkish banks was the sale of Turkish state telecom company Türk Telekom to the Lebanese Hariri family in 2005. Three Turkish banks provided the Hariris with $4.5 billion in credit to make the purchase. This year, however, the banks were forced to take shares in the telecom company when the Hariris’ company failed to repay its debt.

In April this year Turkey watched as yet another large loan was given to a company with close ties to the Turkish government when Demirören Group bought Turkey’s largest media group, Doğan Media, with a 10-year billion-dollar loan provided by Turkish state bank Ziraat.

As well as a series of politically-motivated loans, a large proportion of which will likely not be repaid, Turkey’s tense relations with the United States and the ensuing plummet in the value of the lira this year have seriously impacted Turkish banks. As a result, Moody’s downgraded the credit rating of nine Turkish banks in September, and Fitch followed suit in October by downgrading 20.

Faced with a shortage of capital and in need of equity support, three Turkish state banks, Halkbank, Vakıfbank and Türk Eximbank, have had to draw 11 billion lira from the unemployment benefit fund, sparking outrage among the Turkish opposition.

Thus, Turkish state-owned and private banks do not have the resources to fund a $3 billion wind farm project, and since Turkey’s credit default swap risk rating has plummeted on international markets, the cost of borrowing for the country’s Treasury and banks has doubled, even tripled.

This has recently been reflected in the Treasury’s decision this month to reduce bond maturity periods from 10 to five years and increase interest rates to 7.5 percent, a rise of nearly 50 percent since previous rounds of bonds were issued earlier in the year.

Firms are therefore looking at huge difficulties in securing foreign funding, on top of which they face frightening levels of interest rate risk.

The tender bids for a land-based wind farm project in Turkey last year resulted in a $3.49 per megawatt hour guaranteed price, announced at the time as a world record.

This price is likely to be higher for the offshore project, thanks to the higher costs of construction at sea, Turkey’s heightened credit risk rating, and the country’s rising costs of construction and financing. Yet it seems companies are hesitant to undertake such a risk even with the promise of a higher price.

Many previous companies that won energy privatisation tenders and financed their projects in foreign currencies despite earning in Turkish lira have been hit hard this year by the currency’s fall in value of almost 40 percent. Even though this loss in value and the country’s 24.5 percent inflation have driven energy prices up by 45 percent since January, CW Energy, one of Turkey’s 500 biggest firms, was forced to apply for bankruptcy protection earlier this month.

Albayrak, now in charge of the Treasury and Finance Ministry, has been forced by the dire economic situation to announce significant cuts to investment in the “New Economic Programme” he revealed in September and then in the 2019 budget, which foresees a contraction in the economy of more than 70 billion lira.

The world’s largest offshore wind farm, which was announced with much fanfare in time for the June 24 elections, by all appearances has fallen victim to the heightened risks, lack of funds, rising interest rates, loss of investor confidence and weakened lira that have plagued Turkey’s economy this year.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.